How Can Hedge Funds Raise More Capital?

“Like anything else in life, when you are raising money for your fund, it’s very much about you as a person,” said Leigh Drogen, the co-founder and CEO of Estimize. “People give money to people they trust. They don’t give money to statistics or returns or strategies — they give money to people, so personal connections and trust are everything.”

Drogen knows a bit about raising capital. Before starting Estimize, he founded Surfview Capital, a New York-based investment management firm, and served as the company’s CIO.

“The best way to raise money is to get personally introduced to people from people who trust you,” Drogen advised. “This is what allowed [Bernie] Madoff to garner all that capital for so long without telling anyone how he was supposedly making returns, which is a horrible thing.”

But there is a silver lining to this situation. “It is also how someone with little history or track record can get started and be successful,” said Drogen. “You have to start from somewhere, and the people likely to give you your first shot are the people who trust you.”

If you are just starting out, Drogen recommends that aspiring entrepreneurs ask themselves the following questions:

(1) “Have you worked in the industry you are attempting to build a startup in? In finance, it is specifically important to have worked in finance before, just because of the lexicon and you really have to know the landscape. You can’t just jump into it like people jump into building a local social mobile app. It’s completely different.”

(2) “Have you worked at a startup before at all? You need to have that experience before you start your own business. There are so many mistakes that you’ll make if you haven’t had that experience before. It’s like trying to go to the moon without ever being in a simulator. You just don’t want to do it.”

(3) “Do you have a co-founder who has either of those qualities as well? That is extremely important. You cannot do this on your own. You need that co-founder there, whether you’re the technical guy and he’s the business guy or vice versa, it is just absolutely necessary.”

Drogen said that based on base rate statistics of failure and success in people building startups, those are the most important things to consider. “I don’t even tell them if I think their idea is good or not,” he said. “A lot of the time that isn’t what matters. Who am I to say that their idea is good or not? Who is anybody?”

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